Figures released yesterday from the National Association of Estate Agents reveal only 3% of homes sold in June were to buyers aged 18-30, research from Experian, the global information services company, suggest this could be due to young homebuyers severely overestimating the affordability of mortgages.

The NAEA figures mark a steep fall from last August, when the age group made up 12% of homebuyers. This follows April’s Mortgage Market Review (MMR) which specified that all mortgage borrowers will need to show they have considered how they will be able to manage their repayments in the long term – for example, in the event of an interest rate rise.

Despite the MMR’s emphasis on affordability, Experian found that a third of all would-be 18-29 year old buyers surveyed admit they currently find it difficult to budget each month.

·         Half (52%) confessed to overspending in the last month;

·         A quarter had to dip into their overdraft last month – 12% heavily;

·         One in six (18%) say they are unable to cut back outgoings any further

Research also suggests that many young homebuyers may be guilty of complacency when it comes to getting their credit score and financial situation in order. One in ten (9%) do not plan to prepare their finances before their mortgage application, while another fifth (19%) only plan on preparing a month prior to their application.

Moreover, fewer than one in ten (8%) have checked their credit score in the last six months, which would help provide a clear picture of their financial situation and how they are likely to be viewed by lenders – including how competitive a mortgage offer might be.

What’s more, only a third (34%) plan to clear outstanding debt before applying for a mortgage and under a fifth (18%) to even pay down their borrowing, actions that will improve borrowers’ credit scores and free up additional funds each month.

Peter Turner, Managing Director, Experian Consumer Services, UK & Ireland, commented:

“These findings show just how important it is for young people to get their finances in the best shape possible in advance of a mortgage application. Interest rates have been low and stable for so long that the current generation of first-time buyers has never known it any other way. But as the economy improves, interest rates will inevitably rise, and could rise several times. It’s therefore vital that young people seize control of their financial situation to get themselves in the best possible shape. Improving your credit score is critical for younger borrowers, many who may not have built up a sufficient credit history or may be unaware how their past repayment affects future borrowing.”

Here are some simple tips from Experian CreditExpert to help young mortgage applicants get the best interest rates possible:

1.    Know your budget. As soon as you decide to look for a property, scrutinise your last few months’ outgoings carefully to understand your spending habits. Are there things you could do without to finish each month with cash in the bank?

2.    Know what you can really afford. Visit a broker or use an online mortgage calculator to work out your likely repayments. Importantly, play with the interest rate settings to see if you could afford repayments if rates rise by 1%, 2% or more.

3.    Make sure your credit report is up to date. As well as checking your outgoings, you should also check your credit report, which includes a record of all your borrowing over the last six years. Ensure everything is accurate and up-to-date.

4.    Does your Experian Credit Score need work? The Experian Credit Score is a guide to help you understand how a lender might score your credit worthiness. If it’s lower than you expected, ask the experts for help and ensure your credit report paints the best picture possible before you make your application.

5.    Build good behaviours. Finally, from now until your application, try to appear like an ideal mortgage borrower. Show you can make it through several months with a slight surplus. Don’t take out additional borrowing and try to demonstrate you can comfortably manage any outstanding credit commitments you have

Research was carried out online by Canadean Consumer in April 2014 on behalf of Experian CreditExpert among a representative panel of 1,457 UK adults looking to buy a property in the next year.